{"id":1901,"date":"2021-09-10T12:37:54","date_gmt":"2021-09-10T16:37:54","guid":{"rendered":"https:\/\/www.skypointfcu.com\/wph\/workarea\/?p=1901"},"modified":"2022-03-31T11:20:05","modified_gmt":"2022-03-31T15:20:05","slug":"will-you-really-run-out-of-money-in-retirement","status":"publish","type":"post","link":"https:\/\/www.skypointfcu.com\/wph\/workarea\/blog\/will-you-really-run-out-of-money-in-retirement\/","title":{"rendered":"Will You Really Run Out of Money in Retirement?"},"content":{"rendered":"\n

Many U.S. households retire without enough money to maintain their pre-retirement standard of living. Once retired, though, people often reduce their spending enough to make their money last, according to a recent study by David Blanchett, head of retirement research at Morningstar, and Warren Cormier, executive director of the Defined Contribution Institutional Investment Association\u2019s Retirement Research Center.<\/p>\n\n\n\n

\u201cPeople are finding a way to make it work,\u201d Blanchett says.<\/p>\n\n\n\n

The findings challenge a common financial planning assumption that retirees\u2019 spending will increase at the rate of inflation each year. But the research also indicates many people retire without a realistic understanding of how much they can safely spend.<\/p>\n\n\n\n

Running out vs. running short<\/strong><\/h3>\n\n\n\n

The fear of running out of money is pervasive in the U.S. Nearly half of Americans have this concern, according to the 2019 Aegon Retirement Readiness Survey. And their worries may be well-founded. A 2012 paper for the National Bureau of Economic Research found 46.1% of older adults died with less than $10,000 in financial assets.<\/p>\n\n\n\n

Of course, the phrase \u201crunning out of money\u201d is somewhat misleading. The vast majority of U.S. retirees receive Social Security benefits, which continue for life. So while they may run through their savings and run short of money, they can\u2019t truly run out.<\/p>\n\n\n\n

Still, few people relish the idea of having to cut back sharply on their spending in retirement or eking out an existence on $1,543 a month (the current average Social Security check).<\/p>\n\n\n\n

Spending less slows the burn rate<\/strong><\/h3>\n\n\n\n

Blanchett and Cormier studied 425 U.S. households that had at least $10,000 in savings at retirement and $5,000 in annual Social Security benefits. They found only 18% retired with enough money to maintain their standard of living.<\/p>\n\n\n\n

Over time, though, most of the households reduced their spending and slowed how quickly they were burning through their savings. After 10 years, the proportion with sufficient funds to last their retirement shot up to 48%.<\/p>\n\n\n\n

The research, which was published in September 2020, has its limitations. The sample size was relatively small, didn\u2019t include the poorest households and examined only the first 10 years of retirement. Also, the researchers couldn\u2019t tell whether people were cutting back by necessity or choice. Blanchett believes many haven\u2019t thought enough about how much retirement will cost<\/a> and are forced to adjust as their savings dwindle.<\/p>\n\n\n\n

\u201cEither they didn\u2019t know how much they needed to save<\/a>, or they just didn\u2019t (save),\u201d Blanchett says. \u201cThey get to retirement and they have to start making harder choices.\u201d<\/p>\n\n\n\n

Some who could spend more don\u2019t<\/strong><\/h3>\n\n\n\n

However, the researchers also found that many of the households that had enough money were spending as if they did not. In fact, 29% of the best-funded households actually had more wealth 10 years into retirement.<\/p>\n\n\n\n

That resonates with financial planners, who say they often have clients who spend less \u2014 sometimes much less \u2014 than their wealth would support. Some want to leave inheritances for their kids or guard against financial shocks, such as long-term care. In other cases, they\u2019re just more comfortable continuing old habits.<\/p>\n\n\n\n

\u201cIf you are in the habit of being frugal, you tend to remain that way,\u201d says certified financial planner Dana Anspach of Scottsdale, Arizona.<\/p>\n\n\n\n

People can take frugality too far, though, if fear keeps them from getting the most out of their retirements, Blanchett says.<\/p>\n\n\n\n

\u201cYou might end up not spending enough money when you could enjoy it more,\u201d he says.<\/p>\n\n\n\n

A little planning can go a long way<\/strong><\/h3>\n\n\n\n

Picking the \u201cright\u201d level of spending in retirement isn\u2019t easy because of all the unknowns, including how long you\u2019ll live and your future health. Having a clear idea of what your expenses are likely to be in retirement, as well as how much income you can expect, can help you create a sustainable spending plan. A good financial planner<\/a> \u2014 preferably a fee-only fiduciary advisor committed to putting your best interests first \u2014 could be helpful. Your brokerage or 401(k) provider also may have resources to help guide you.<\/p>\n\n\n\n

A little planning could go a long way to help the many people who won\u2019t be able to sustain their pre-retirement lifestyle. Blanchett likens it to being able to spot the edge of a cliff in time to avoid going over.<\/p>\n\n\n\n

\u201cIt can be a very painful reality for a lot of people when they really understand what they have and what they need,\u201d Blanchett says. \u201cBut I\u2019d rather you understand that at 65 than you get to the point that you\u2019ve blown through all your savings.\u201d<\/p>\n\n\n\n

This article was written by NerdWallet and was originally published by the Associated Press.<\/em><\/p>\n\n\n\n

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